Argentine Lithium Expansion Doubts Amid Market Turmoil

The "news" of Argentina's lithium production capacity surging by eighty percent continues to ferment, and the price of battery-grade lithium carbonate has once again "broken through the defense." Argentina, as a major global lithium resource country, is expanding production against the trend, which is making the new energy industry face a worsening situation once again!

On July 3rd, the benchmark price of battery-grade lithium carbonate on the Business Society broke through the 100,000 yuan mark. The main contract of lithium carbonate 2047 also broke through the psychological threshold of 90,000 yuan.

However, it is worth being vigilant, is this an accident or a premeditated plan? In various "news," it seems to be intentionally confusing concepts. Behind the "broken defense" of lithium prices, a covert war seems to be unfolding.

PART/01 There must be a demon behind the unusual! Unexpected expansion or premeditated plan?

There must be a demon behind the unusual, let's review the beginning and end of the matter.

On July 1st, a message without a timetable was reported by Bloomberg, the Argentine government plans to put into production four new lithium mining projects in the coming weeks and months - this will greatly increase Argentina's annual lithium production capacity by 79%, reaching 202,000 metric tons of lithium carbonate equivalent, and the balance of international lithium resource supply will be disrupted.

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Subsequently, the news of a significant increase in lithium mining supply spread rapidly. This week, the average market price of industrial-grade lithium carbonate once fell to 86,500 yuan/ton, a drop of 4.95%; the average market price of battery-grade lithium carbonate also fell to 89,500 yuan/ton, a drop of 4.79%. The psychological threshold of 90,000 yuan/ton for lithium carbonate was continuously broken through. The entire market fell into turmoil and speculation.

However, a serious question needs to be raised here. Is Argentina's expansion an "accident" or a premeditated plan?

In response, the founder of True Lithium Research, Mo Ke, pointed out in an interview, "(Argentina's expansion) was originally planned expansion, the related supply was basically calculated at the beginning of the year, and it will not increase the supply additionally."

Therefore, in the industry and even among most professionals in lithium carbonate futures, there is no such thing as Argentina suddenly increasing lithium mining production.However, why does the entire market seem to be "facing a major enemy" and panic excessively when the industry had already anticipated it?

In response, industry insiders have said that in addition to the blind followers among retail investors, it is necessary to be particularly vigilant against "news speculation" that guides the market and takes the opportunity to manipulate it. Recently, there have been too many "baseless news" and "rehashed old news," such as Ningde's suspension of production and overseas unsalability, all aimed at bearish market sentiment.

Therefore, when something is out of the ordinary, there must be a reason, and the market may already be facing an inflection point.

PART/02 Two Major Doubts, Lithium Mine Expansion More Like a Psychological Warfare

"Using the news of Argentina's lithium mine expansion to suppress lithium prices is more like a psychological warfare."

Individuals close to the market have indicated that over the past six months, the pattern has consistently been that the futures price of lithium carbonate has been higher than the spot price. As a result, there has been significant short-selling pressure that urgently needs to be released. Therefore, the expansion plan of Argentina's lithium mines has become the best material for storytelling.

However, despite meticulous planning, there are two major doubts that have arisen during the continuous fermentation of the news related to the 80% expansion of Argentina's lithium mines. One is the confusion between production capacity and actual output, and the other is the lack of understanding of costs.

Firstly, there is a difference between "production capacity" and "actual output." Industry insiders have warned that it is necessary to be cautious that the actual output of lithium carbonate may significantly differ from the growth in production capacity, and the actual output may not increase substantially.

Even though Argentina has currently announced a plan to expand production by 200,000 tons, regardless of whether the production capacity is inflated, it will take a long time to reach this capacity. More often, this is a signal intentionally released by Argentina's Mille government to address the fiscal crisis and attract foreign investment.

However, historically, Argentina has been talking about the large-scale development of brine lithium resources for more than a decade, and so far, only one has been built, and it has not yet reached full production. Many Chinese companies, such as Contemporary Amperex Technology Co. Limited (CATL) and Ganfeng Lithium, have been deeply involved in this and have learned painful lessons. Given Argentina's investment efficiency and construction capabilities, it is uncertain whether production will be achieved this year, let alone next year or the year after.Secondly, from a cost perspective, by 2024, the cash costs of 90% of the main lithium mines, converted into lithium carbonate equivalent, have approached 75,000 yuan/ton. The net profit ratio of the lithium salt segment in the lithium mining industry is already at a historical low.

Industry insiders have pointed out that, under the current situation of declining lithium prices, investment in mining is slowing down, and mining costs and freight rates are rising rapidly, all of which make the price close to the market bottom. If the price of lithium mines is further reduced, it will not only lead to further production cuts in the resource end, but also allow most manufacturers to wait for low-priced mines to ship first, and then wait for the price to rise.

Mo Ke, the founder of True Lithium Research, also said that the current trend is that due to the decline in lithium prices, projects with high costs are reducing or suspending production, and the total supply this year may not meet the general expectations at the beginning of the year. Argentina's so-called plan to expand production will have more of a short-term impact on lithium prices in terms of sentiment, but it is expected to be corrected immediately, and the overall impact on lithium prices and the industry is not significant.

PART/03 Grabbing capacity and quotas, everyone is waiting for the wind to come

According to the situation learned by True Lithium New Media at the "Chengdu·2024 Lithium Battery Market Seminar" held in late June, although upstream lithium mines and lithium carbonate production enterprises are complaining about the low price of lithium, none of them have chosen to give up.

"There is no capacity to clear out, on the contrary, investment growth is much faster than capacity clearance." This is the true situation reflected by a large lithium mine in Sichuan.

In the case of low lithium prices, it is a great opportunity to grab resources and capacity. Everyone knows that with the rapid development of new energy and the increase in lithium battery demand, the overall trend must be resource-based, and prices will rise steadily. The current low price of lithium carbonate is just a product of the supply and demand imbalance left over from the previous cycle. As long as this cycle adjustment is withstood, the survivor will be the king.

The key is that the product life and construction cycle of lithium mines and lithium carbonate are very long, and they will not deteriorate if piled up in the mining area or stored in the warehouse. Enterprises are more under pressure from capital and debt costs. Some downstream traders have revealed that there are many inventories that have not moved from last December to now (there are restrictions on warehouse time, but they are often transferred outside and pulled back), and enterprises are not in a hurry to ship.

Under the current financial policy and bank credit environment, as long as banks do not withdraw loans or raise interest rates, enterprises can slowly get through this "price winter" by reducing production and suspending work and production.

There are also more optimistic views that this decline in lithium prices may mean that the futures market's subsidy to the spot market, which has lasted for nearly half a year, is about to end. The behavior of using the expansion of Argentina's lithium mines to suppress lithium prices itself has already shown the urgency of "short positions". With the exhaustion of "short positions", the growth of actual lithium carbonate supply slows down, and the expectation of interest rate cuts in the United States strengthens, the lithium carbonate market may re-enter the upward cycle.The current situation is that everyone is waiting for the wind to come. Whether it's the interest rate cut of the US dollar or the continuous growth of downstream lithium battery energy storage and new energy vehicles, as long as the wind comes, the price of lithium will definitely be able to gradually warm up.